Filing identity and period
Important mismatch: The supplied filing is New York Community Bancorp, Inc. (NYSE: NYCB), not Flagstar Bank, National Association. It is a Form 10-Q for the quarter ended September 30, 2011; confirm the filing matches the intended company before relying on this summary.
NYCB operated community and commercial banking businesses and residential mortgage banking across New York and several other states. Financial statement amounts below are consolidated; dollar figures are in U.S. dollars.
Financial performance and condition
| Metric | Q3 2011 / September 30, 2011 | Comparable period or prior date |
|---|---|---|
| Net interest income | $295.0 million | $286.2 million in Q3 2010; $302.0 million in Q2 2011 |
| Net interest margin / spread | 3.33% / 3.19% | Margin: 3.36% in Q3 2010 and 3.50% in Q2 2011 |
| Net income / diluted EPS | $119.8 million / $0.27 | $135.6 million / $0.31 in Q3 2010 |
| Nine-month net income / diluted EPS | $362.4 million / $0.82 | $391.2 million / $0.90 in first nine months of 2010 |
| Assets | $42.0 billion | $41.2 billion at December 31, 2010 |
| Loans, net | $29.9 billion | $29.0 billion at December 31, 2010 |
| Deposits / borrowed funds | $22.8 billion / $13.4 billion | $21.8 billion / $13.5 billion at December 31, 2010 |
| Cash and cash equivalents | $1.6 billion | $1.9 billion at December 31, 2010 |
| Stockholders’ equity | $5.6 billion; 13.28% of assets | $5.5 billion; 13.42% at December 31, 2010 |
- Q3 interest income was $461.9 million and interest expense was $166.9 million. Non-interest income was $58.1 million; non-interest expense was $152.6 million. Income before taxes was $182.4 million.
- Q3 non-covered loan-loss provision was $18.0 million; no covered-loan provision was recorded in the quarter. For the first nine months, total loan-loss provision was $67.7 million, including $8.7 million for covered loans.
- Operating cash flow was positive $641.5 million for the first nine months, versus negative $401.1 million in 2010. Investing cash flow was negative $1.47 billion and financing cash flow positive $498.2 million; cash declined $330.9 million.
- Non-covered non-performing loans were $416.8 million, or 1.66% of non-covered loans, versus $624.4 million and 2.63% at year-end 2010. Non-covered OREO was $102.7 million. The allowance for non-covered loans was $139.4 million, equal to 33.44% of non-covered non-performing loans.
- Consolidated regulatory capital ratios were 9.16% leverage, 13.64% Tier 1 risk-based, and 14.25% total risk-based. Both subsidiary banks exceeded the filing’s well-capitalized thresholds.
Material changes and management commentary
- Compared with Q3 2010, net income fell 11.7% and diluted EPS declined from $0.31 to $0.27. Lower mortgage banking income was the principal drag: it was $24.3 million in Q3 2011 versus $76.5 million a year earlier. Total non-interest income fell $49.0 million year over year.
- Net interest income increased $8.8 million year over year, but the Q3 margin declined 17 basis points from Q2, to 3.33%. Management attributed pressure to lower asset yields and reduced prepayment penalty income; average asset yield fell to 5.19%, while average cost of funds was 2.00%.
- Mortgage activity rebounded sequentially as rates declined: loans originated for sale rose 56.8% from Q2 to $1.8 billion, and mortgage banking income increased to $24.3 million. Held-for-investment originations were $1.9 billion in Q3.
- Management reported improving asset quality: non-performing non-covered loans fell 17.1% from Q2, and quarterly net charge-offs declined to $13.1 million. It nevertheless emphasized continued uncertainty and economic weakness. The portfolio is concentrated in multi-family and commercial real estate lending, largely in the New York region.
- Unusual items included $6.7 million of Q3 securities-sale gains and $2.3 million of severance expense. The nine-month results included $35.5 million of securities gains, a $9.8 million gain on disposition of the insurance premium financing business, $7.6 million of FDIC indemnification income, and an $18.1 million securities impairment loss.
Outlook, risks, and contingencies
- The filing provides no specific earnings or revenue guidance. Management described continued economic uncertainty, a weak recovery, and possible effects from European debt concerns and recession risk.
- Key risks include deterioration in real estate values, borrower repayment capacity and local economic conditions; interest-rate and prepayment changes; mortgage-loan repurchase claims; securities impairment; and reliance on brokered deposits and wholesale funding.
- At quarter-end, $5.6 billion of CDs were due within one year; $3.8 billion of deposits were brokered. FHLB-NY borrowing capacity was $4.1 billion. Approximately $11.6 billion of wholesale borrowings were callable by year-end, and $512 million of senior notes were due December 16, 2011, with another $90 million due June 22, 2012.
- FDIC loss-sharing agreements cover specified acquired assets, generally reimbursing 80% of losses up to stated thresholds and 95% beyond them. Covered-loan cash-flow estimates and the FDIC receivable are subject to management judgment.
- The filing added a risk concerning possible U.S. sovereign and related agency credit-rating downgrades, which could affect securities values and funding. It also noted that trust securities qualifying as Tier 1 capital were expected to phase out of that treatment from 2013 through 2016.
- The board declared a $0.25-per-share quarterly dividend payable November 17, 2011. Management stated disclosure controls were effective and reported no material quarterly change in internal control over financial reporting.
Most important facts to verify
- Confirm the registrant identity: the provided document is NYCB’s filing, not Flagstar Bank’s.
- Review whether the improvement in non-performing loans is sustainable, including OREO growth, troubled debt restructurings, charge-offs, and allowance adequacy.
- Assess the New York-area multi-family and CRE concentration and the sensitivity of earnings to prepayment penalties, interest rates, and property conditions.
- Verify near-term funding and refinancing capacity, including CD maturities, callable wholesale borrowings, senior-note maturities, and brokered-deposit reliance.
- Evaluate the durability of mortgage banking revenue and the potential cost of GSE representation-and-warranty claims; 34 repurchase requests totaling $8.4 million were outstanding, with no loans repurchased as of quarter-end.